UT Study: Tennessee Education Lottery Healthier Than Predicted

KNOXVILLE — The Tennessee Education Lottery Scholarship (TELS) programs are healthier than previously thought. That is the conclusion of the report “A Forecast of Tennessee Education Lottery Scholarship Expenditures,” recently released by the Center for Business and Economic Research (CBER) at the University of Tennessee, Knoxville.

CBER conducted the report in cooperation with the Tennessee Higher Education Commission (THEC) and the Tennessee Student Assistance Corporation (TSAC) in support of the Lottery Scholarship Stabilization Task Force, which was charged by the state legislature to formulate a plan to bring the scholarship program into fiscal balance. The study provides estimates of expected annual expenditures on scholarships and grants under the TELS programs for academic years 2010-2011 through 2013-2014.

Don Bruce, research professor, and Bill Fox, economics professor and CBER director, and THEC’s chief policy officer David Wright will be available for a conference call with reporters on Tuesday, Aug. 31 at 10 a.m.

Numbers provided by the study find that the dollar shortfall between Tennessee lottery revenue and the scholarship programs it funds is a lot less than previously projected — reducing the immediate need to cut student aid or raise the standards to qualify for it.

Expenditures have grown rapidly in the past due to policy and structural changes, startup costs, and more recently enrollment growth. For instance, the TELS programs added a cohort of graduating high school students each year, taking four years to span all four traditional years of college education — and five years to reach full capacity. Also, the initial full-year HOPE scholarship amount of $3,000 has been increased over time to the current value of $4,000. New programs also have been added, including a dual-enrollment program for high-school students, a HOPE scholarship for foster children and several others.

“Absent these kinds of policy-driven program changes or strong growth in the number of graduating seniors, one would not expect future TELS expenditures to continue to grow as significantly as in past years,” the study read.

The new projections suggest expenditures will rise slightly from 2010-2012 but level off and fluctuate only slightly relative to the size of the prior year’s 12th grade high school class. Expenditures will hover annually above the $309,000,000 mark between 2012 and 2014. Similarly, the number of total HOPE recipients will rise slightly and level off near 73,000. All TELS programs are expected to serve about 100,000 students each year.

The researchers analyzed data from every past and present scholarship recipient, studied patterns in eligibility, take-up (the proportion of those who actually use the scholarship) and retention rates, and developed models for future expenditures.

The study found that eligibility percentages have been stable in the historical data. HOPE scholars had a take-up rate of 88 percent and the renewal rates are between 60 and 91 percent between the first and second terms of a student’s receipt of a scholarship.

The authors predict any future expenditure growth will be driven primarily by fluctuations in the size of the annual high school graduating class and any future structural changes to the scholarship programs. Absent policy changes, one would not expect future TELS expenditures to continue to grow as significantly as in past years, unless student performance changes. For example, improvements in the quality of Tennessee K-12 and higher education that cause more students to be eligible for and retain scholarships will increase lottery expenditures.

However, the authors note an improvement in educational quality could alter TELS expenditures. For example, Tennessee’s Race to the Top initiatives aim to increase high school graduation rates and the share of recent high school graduates who enroll in higher education and complete at least one year of higher education. Success in these areas will add students to the possible pool of TELS recipients and thus place upward pressure on total TELS expenditures going forward.

The report will be reviewed by the Lottery Scholarship Stabilization Task Force, which will make its recommendations to the state legislature. To read the report and learn more about CBER, see http://cber.bus.utk.edu/.

NOTE: Nashville area reporters wishing to participate in the conference call should call 615-253-4881 (no PIN required). All other reports can call toll-free 866-531-9321 and enter the PIN number 5477.